Advance payments on fuel may reach pounds 1bn

Gas and electricity consumers have paid at least pounds 700m in advance to avoid the imposition from tomorrow of VAT on domestic fuel bills. Electricity supply companies and British Gas said that the final figure could be much higher as they continue to count last-minute payments.

British Gas is the main beneficiary, with more than pounds 200m already collected. Of the electricity companies, Southern Electric has taken the highest amount so far with pounds 68m paid by 110,000 customers. Seeboard is a close second, with pounds 64m at the last count, paid by 115,000 customers. South Wales Electricity said that one customer had paid pounds 7,000 to cover bills for the next nine years.

If the advance payments reach pounds 1bn, which seems likely, it is estimated that the Government will lose round pounds 80m in tax in the coming financial year.

The mounting payments have increased calls from consumer and environmental groups for the companies to make good use of the interest they accrue. The Gas Consumers Council estimates that the companies will have pounds 15m in windfall profits, after spending about pounds 25m on handling the payments.

Ofgas, the gas industry regulator, has also asked people to read their own gas meters tomorrow to make sure they are not overcharged when British Gas calculates the amount of VAT to put on gas bills.

Separately, Ofgas sparked a potential row yesterday when it said that it would not fund future energy-saving schemes. At present British Gas pays over pounds 2m into energy-saving schemes and can pass the cost on to comsumers under a previous agreement with Ofgas. But Clare Spotiswoode, the new director general of gas supply, said that she had taken legal advice and concluded that Ofgas did not have the legal power to finance energy- saving schemes.

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